67% of Active Large-Cap Funds Lagged S&P 500 in Q2
Active managers underperformed despite broad market gains in mid-cap and small-cap sectors during the first half of 2026.
67% of active U.S. large-cap equity funds underperformed the S&P 500 in the first half of 2026. This figure represents an improvement from the 79% underperformance rate recorded in the same period last year. The S&P 500 gained 10% through June 30, driven by robust corporate earnings after a volatile start to the year.
Market breadth expanded significantly during this period. The S&P MidCap 400 advanced 17% and the S&P SmallCap 600 rose 24%. These gains outpaced the large-cap index by 7% and 14%, respectively. Despite this wider dispersion, active managers failed to capitalize on the opportunity in most domestic categories.
Domestic Managers Miss Benchmarks
Active management struggled across domestic equity styles. 74% of mid-cap funds underperformed their style targets. 69% of small-cap funds also lagged their respective benchmarks. The SPIVA U.S. Scorecard notes that broader participation did not provide sufficient alpha for these managers.
Large-cap managers faced high fee drag that outweighed potential selection gains. Mid-cap and small-cap managers lacked the tailwinds to tilt into larger outperforming names. Consequently, active strategies failed to beat passive index funds in these domestic segments.
International and Bond Strategies Outperform
International equities provided a relative success for active managers. Only 49% of U.S.-domiciled international funds underperformed their benchmarks. 53% of global funds lagged their respective indices. This performance contrasts sharply with the domestic large-cap results.
Emerging markets offered the strongest alpha opportunities. The S&P Emerging Plus Index gained 22%. Only 38% of emerging market funds underperformed. International small-cap managers achieved the highest success rate, with just 35% lagging the S&P Developed Ex-U.S. Small-Cap index.
Fixed income managers posted a cross-category average underperformance rate of 38%. General investment-grade funds saw 42% underperform. High-yield managers had a 49% underperformance rate. Government bond managers struggled significantly, with 77% failing to match their benchmark.
Passive Efficiency Remains High
The data highlights the persistent efficiency of index funds. Active managers must overcome higher fees and benchmark constraints. The GN auto markets/equities report confirms that broad market gains do not guarantee active outperformance. Investors continue to favor passive strategies for domestic core exposure.
